Anyone with experience in China knows that, due to lack of discovery, the challenge of obtaining evidence can be a significant deterrence to bringing patent infringement and anti-counterfeiting lawsuits in China.  The recently-promulgated Circular on Issues Relating to Comprehensive Implementation of Electronic Supervision and Administration for Drug Production and Distribution Enterprises (the “Circular“) may give owners of IP in pharmaceutical products a mechanism for collecting much-needed evidence to support their infringement and damages claims.

The Electronic Supervision and Administration System for Drugs

On January 4, 2015, the China Food and Drug Administration (“CFDA”) issued its first circular for 2015 which set the agenda for implementing the electronic system for supervising and administering production and distribution of all types of pharmaceutical products (the “System“).  Under the System, each package of a drug product must be identified by a unique electronic supervision and administration code (the “Code“).  The Code is composed of a 20-digit number, a bar code and text (such as telephone number and website address).  Examples of acceptable Code formats are shown below (the Chinese text at the top is translated as “China Drug Electronic Supervision and Administration Code”): 

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The Code must be indicated on the exterior of the package itself and identifies basic information such as drug name, manufacturer, approval number, dosage form and strength, date of production, batch number and package size.  All drug manufacturers and distributors are required to record the flow path of a drug product from when it is packed until it reaches the end user or medical institution in a centralized national database maintained by CFDA.

The System was first implemented on key pharmaceutical products, such as blood products and vaccines, in 2008.  Three years later, the System expanded to drug products listed in the National Fundamental Drug Catalogue.  According to the Circular, as of January 1, 2016, the circulation of all drug products marketed in China must be recorded and monitored in the System.

Helpful for IP Owners of Pharmaceutical Products?

The comprehensive implementation of the System should help IP owners seeking to enforce their IP rights in civil litigation involving pharmaceutical products.  Plaintiffs in such cases may try to obtain relevant evidence from CFDA by applying for court-ordered evidence collection, which is allowed under China’s Civil Procedure Law.  Under the Civil Procedure Law, a party may ask the court to investigate and collect evidence where the evidence is contained in files kept by relevant state organs.  If the court grants a request directed at CFDA records kept in the System (admittedly, a big “if”), the information collected might help the plaintiff prove damages and, to a lesser degree, better understand the infringing drug product’s distribution chain.  In China, damages for IP infringement are generally determined according to the plaintiff’s loss as a result of the infringement, the infringer’s gain resulting from the infringement, or a reasonable royalty.  It is often difficult to prove damages since the defendant possesses much of the relevant evidence and, as mentioned above, there generally is no mandatory discovery in China.  Examples of useful evidence obtainable from CFDA’s database include quantity of infringing products manufactured or sold within a certain period, quantity of infringing products in stock, real-time location of drug products, and source of a particular product.

It will take some time to see whether full implementation of the System brings any benefit to IP owners who enforce their IP rights through civil litigation.  In the end, it will depend on the judges hearing the cases to consider such evidence-collection requests in a fair and reasonable manner.  We are hopeful the judges are up to the task, especially the experienced and IP-savvy judges of the newly-established IP courts in Beijing, Shanghai and Guangzhou, which we reported on in an earlier post.